Question

Currently, the yield curve is ascending. A customer believes that the Federal Reserve will start to tighten credit by raising short-term interest rates; and also believes that long term yields will move downwards from current levels because of record demand for long-term Treasury obligations by pension funds. To profit from this, the best recommendation would be to

Answer 1

Answer:

Short-selling long-term bonds and taking long position on short-term assets

Explanation:

When the yield curve ascends, the long-term bond's price will go down. Hence, do short-sell the long-term bonds. On the other hand, short-term asset's price will be depreciated because Fed tightens credit and raise short-term rate, which is the chance to purchase and make profits from capital gains.